Why Use an OCIO?

Investment ManagementOCIO
Written By Creative Dawn Marketing

Not all that long ago, the scope of a Registered Investment Advisor (RIA) was more narrowly defined: develop investment strategies, manage portfolios, and provide financial advice. But today, an advisor is expected to be all that and then some—a jack-of-all-trades: analyst, risk manager, strategist, regulatory specialist, cost accountant, and more.

That’s much easier said than done. Navigating the ever-expanding universe of assets and classes, wrestling with volatile markets, and staying on the right side of the ever-evolving regulatory labyrinth—it's a tightrope walk on a blustery day.

Faced with this challenge, more and more RIAs are turning to Outsourced Chief Investment Officer (OCIO) services. These outsourced specialists can serve not just to lighten the proverbial load, but also to act as a strategic ally who can unlock untapped growth potential, increase scalability, business focus, and profitability.

But what is the role of an OCIO in the complex world of investment management? Let’s dig in.

Key Considerations for RIAs

A wealth advisor’s job can vary depending on a few factors, including the specific regulatory requirements, client needs, and business model. Even so, there are some common pain points and challenges that almost every RIA will run into during duty which might compel them to consider OCIO services. [1]

These common challenges may include:

  • Finite Resources — Running any investment management function is often resource intensive. You may lack the manpower, time, financial resources, or specialty expertise to manage investment strategies in-house effectively. But what is the OCIO business? To provide an entire team of investment professionals, effectively augmenting your workforce without the costs, complications, and logistics associated with growing and managing a team in-house. 

  • Lack of Expertise — Most RIAs' core expertise will lie in strategic allocation of traditional investments like stocks, bonds, and mutual funds. But what about risk-management, reducing downside exposure, optimizing for long-term total return (capital appreciation plus dividends) before and during retirement, and alternative investments like hedge funds, private equity, venture capital, and real estate investment trusts (REITs)? Or, even more niche areas like cryptocurrency or art funds?

    An OCIO can bridge the knowledge gap, providing immediate and ongoing access to a team of finance specialists who have the requisite knowledge, experience, and tools to evaluate these options, assess their risks and potential returns, and incorporate them into the client's portfolio in a balanced and strategic way.

  • Lack of Efficiency — Even if lack of expertise isn’t an issue, it still might not be worth it to devote time and energy to all those subjects. Every minute spent learning about new risk-management techniques, new investment opportunities, analyzing intricate investment strategies, or keeping up with the latest regulations is time taken away from serving clients and growing your business.

    While you could hire an in-house specialist to alleviate this issue, it introduces a new problem of escalating costs. Skilled professionals demand high salaries, not to mention the additional costs of benefits, training, and potential turnover. And, in many cases, such a specialist may not bring enough ROI to justify their COGS or the additional administrative burden.

    By pooling resources across multiple clients, OCIOs can offer economies of scale, making top-tier investment management services and a wider array of those services more affordable for RIAs and their clients, while allowing them to spend more time and energy on core competencies.

OCIO vs. In-House CIO

An OCIO performs the Chief Investment Officer’s duties, on a part-time basis, or they are kept on retainer for as-needed work. They provide on-call investment expertise, support, and guidance, but at a fraction of the cost of a conventional in-house CIO. 

This is particularly beneficial for smaller or emerging financial firms, where resources might be stretched thin or larger firms that focus on asset gathering. The costs associated with hiring a full-time C-suite executive—salary, benefits, recruitment, ongoing training, additional staff and the like—can be daunting, and in many cases just not feasible.

Enter the OCIO. They provide practically the same exact benefits as an in-house CIO team, but without the overhead and probably with a wider array of specific capabilities.

And if your company’s demands for the CIO grow, an OCIO can scale its services alongside you. Consider an OCIO the flexible, cost-efficient avenue to having your cake and eating it too.

What Is the Difference Between OCIO and a Consultant?

OCIOs and consultants—two sides of the same coin, right? Not quite.

What is the difference between an OCIO and consultant? While both offer investment guidance, their level of involvement sets them apart. Typically, OCIOs take a more proactive, hands-on approach. While consultants primarily provide advice and recommendations, an OCIO can be directly involved. That may include:

  • Researching and selecting securities/funds

  • Managing portfolios

  • Making investment decisions

  • Taking on fiduciary responsibility

  • Implementing and executing investment strategies

Finally, in terms of payment, an OCIO will usually charge a fee based on assets managed or a fixed percentage of a portfolio's value and/or a consulting fee which may be either retainer-based or hourly; a consultant typically charges a fee based on the duration and scope of engagement, such as an hourly rate.

Difference between OCIO and TAMP (Turnkey Asset Management Program)

You may read “what is an OCIO in finance” and think it sounds similar to a Turnkey Asset Management Program (TAMP). While there is some crossover, the details illustrate their distinct differences.

TAMPs are technology platforms that provide financial advisors with access to investment strategists. Think of a TAMP as an online marketplace, a digital department store of sorts, filled with investment strategists peddling their strategies that the advisor must still research, select and replace. Here, RIAs are the shoppers, picking and choosing from the ready-made offerings, all under the managerial systems of the TAMP.

If you were to liken it to fine dining, a TAMP is like going to a restaurant with a pre-set menu, you may get to make some selections, but there are many, finite options which you must evaluate and choose from, and none of which may fit you and your clients needs.

OCIOs, on the other hand, are like hiring a personal chef. No pre-packaged plans, no one-size-fits-all solutions. Instead, the OCIO designs strategies custom to your needs, cooking up a buffet of financial strategies and services tailored to your tastes. They offer a much higher degree of customization, flexibility in portfolio construction, and a broader range of services beyond investment management, such as risk management and reporting.

Utilizing an OCIO For Your Business

An OCIO, or Outsourced Chief Investment Officer, provides resource efficiency that RIAs of all sizes can leverage for a competitive edge and improved services, without increasing overhead costs.

Unlocking new growth avenues, balancing financial proficiency with cost-efficiency, and amplifying your service offerings—these are just a few of the potential benefits of hiring an outsourced chief investment officer.

At Markin Asset Management, our team provides the OCIO services you’ve been searching for. With team members who have decades of research and portfolio- and systematic risk-management expertise, as well as experience managing over $2BN of high-net-worth individual, family office, trust, and endowment assets, our team is ideally positioned to support your firm, small or large.

Markin Asset Management can be your one-stop shop for outsourced chief investment officer services and expertise. Start a dialogue with our team today to learn how.

Creative Dawn Marketing

Creative Dawn Marketing was founded from a passion of helping small business owners, start ups, and non-profits launch and grow their business, and make a positive impact on the communities they serve. With over 20 years experience providing marketing strategy, branding, design, digital marketing, and more — you’ll be in good hands. We approach every client engagement with an open mind, helping you realize your vision and achieve results that matter. Then, we’ll provide you with ongoing support as needed to continue to grow and scale your business successfully.

https://www.creativedawn.com
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